I'm a Main Street business evangelist and marketing veteran with over 25 years in the trenches, and I write about small business financing as an employee at OnDeck and also at Forbes. I try to make the maze of small business finance accessible by weaving personal experiences and other anecdotes into a regular discussion around one of the biggest challenges facing small business today. The opinions expressed are my own and not those of OnDeck.

For Small Business Week, Maybe Throw More Spaghetti Against The Wall

When politicians talk about supporting small business, they usually refer to Joe the plumber, Mike the barber, or maybe even Barbara’s flower shop. They understand that when most of us think about small business, most of us think about what I refer to as the Main Street type businesses around the corner.

Unfortunately, when Washington talks about small business, they lump Joe’s plumbing business in with companies that have up to 1,500 employees and do $20 or $30 million in annual revenues. What’s more, the policies they put in place and claim are there to help small business, aren’t really focused on Joe, Mike, or Barbara.

Having spent my entire career in small business, and several years in a tech company that looked and felt more like a big company, it’s easy to see how a Main Street business with a half-dozen employees gets lost when the SBA is focused on the multi-million dollar finance needs of larger small businesses. Earlier this week, Lendio Co-founder and CEO Brock Blake asked if we should be thinking in terms of “Micro” businesses. I think he’s on to something. Here’s why.

As the political campaigns were winding down last fall, Gary Belsky, writing for Time, suggested that although candidates from both sides of the aisle laud small business and claim a desire to create an infrastructure that will facilitate their success, it’s a little misleading. “That’s a wide range of definitions, especially given the way politicians and Chamber of Commerce types like to portray entrepreneurs as an urban version of the family farmer. In fact, even the SBA’s small-business loan data is based on a sort of proxy measure. The agency defines a loan to small business as any business loan of $1 million or less. So a $1.1 million loan to a chain of dry cleaners with $5 million in revenues doesn’t get counted, while a $500,000 loan to a 150-worker auto parts wholesaler does.”

Is it any wonder that business owners and community bankers are so confused about how to best navigate the maze that is the SBA or what the President is talking about when he says, “In America, we believe that anyone willing to work hard and take risks can get their good idea off the ground and into the marketplace. It is a notion that has made our Nation bold and bright, and the best place to do business for generations—from small-town storefronts to pioneering startups that keep our country on the cutting edge. This week, we celebrate America’s entrepreneurial spirit, and we recommit to helping our small businesses get ahead.”

This sounds like he’s talking about supporting what Blake calls the “micro” businesses we all identify with, but when it comes to financing and supporting the capitol needs of Main Street, it appears that traditional lending and the SBA have abandoned them in favor of bigger fish that still meet the “small business criteria” embraced by the SBA.

I don’t think there’s any question that small businesses create a lot of jobs each year. Belsky asks, is it big firms, small firms, young firms or older firms? “The real Little Engine That Could when it comes to job creation, as show in a 2010 study from the National Bureau of Economic Research—‘Who Creates Jobs? Small vs. Large vs. Young’—is new companies, regardless of their size,” writes Belsky. “As the authors (John Haltiwanger, Ron Jarmin, Javier Miranda) concluded: ‘Firm startups account for only 3% of employment but almost 20% of gross job creation. The fastest growing continuing firms are young firms under the age of five.’”

Unfortunately, those are the firms that have the hardest time going into a bank to get the financing they need to grow and expand. Most banks, and the SBA, are looking for a 680 credit score, five or more years in business, and a fat bankroll—a difficult set of criteria for a young company getting started.

I’ll admit that there is no simple answer to the financing needs of Main Street and acknowledge that the majority of those businesses don’t make it to their fifth birthday, but “…that’s the nature of the beast,” argues Belsky. “What you want, from a job-creation perspective, is government to foster an environment in which starting a business—period—is easy. It’s a numbers game really; since most small business will fail or stall, you want to throw as many ideas on the pavement as possible so that the small percentage of start-ups that thrive is part of an increasing pool of new companies. The success rate may not change, but the absolute number of successes will.”

I’m convinced part of the answer to Main Street’s challenges regarding financing could be better addressed if Administrator Mills and her colleagues in Washington started looking at the needs of Joe the plumber differently than his much larger siblings on the upper end of what the SBA considers a small business.

If, younger firms are the biggest job creators, maybe the focus of the SBA should be to make it easier for entrepreneurs to acquire the capital they need, knowing they’ll be throwing spaghetti against the wall to see what sticks. “Because the more of those folks we can guide from fantasy to reality, the more jobs we’ll create down the line,” argues Belsky.

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